Page last updated at 16:58 GMT, Sunday, 21 March 2010

Budget 2010: Why bother having a Budget?

By Anthony Reuben
Business reporter, BBC News

Chancellor Alistair Darling is due to deliver his Budget on Wednesday 24 March, but why does he bother?

Alistair Darling
Why not just take the day off instead?

It is less than four months since he made his pre-Budget report, so we have a good idea of what he is planning to do with taxation this year, and chief secretary to the Treasury Liam Byrne said last week that taxes would not have to go up, although there has been some backtracking since that statement was made.

Mr Darling is also not planning a comprehensive spending review, so while there may be talk of cuts, there will be limited detail of where the axe could fall.

It is six weeks before the widely-expected date of the general election. Labour may not win the next election, in which case the new government would probably want to deliver a fresh Budget.

So why doesn't the Chancellor just delay the Budget until after the election?

Government shutdown

Officially, the reason is that there has to be a Budget because the Budget creates the Finance Bill, and the Finance Bill is crucial to the running of the country.

It [a delay] would sow seeds of doubt and confusion in the markets
Prof Patrick Dunleavy, London School of Economics

If the bill is not passed every year, the Treasury says, the government does not have the authority to collect income tax or corporation tax.

This may stimulate memories of what happened in the United States in November 1995, when the speaker of the House of Representatives, Newt Gingrich, would not agree on the budget with Bill Clinton, as a result of which the federal government shut down for almost a month.

That is desperately unlikely to happen in the UK, though.

A House of Commons Library note on the Budget says that if a Finance Bill were not passed by its deadline, the Government would not be forced to close down because it could borrow money to fund its activities instead.

That is clearly not a very long term solution, though, because the government has run up enough debt without stopping collecting income tax.

A big difference between the US and the UK is that the US has a written constitution, while in the UK we have the doctrine of Crown Prerogative, which used to mean that the monarch could take on discretionary powers if necessary, but now could possibly be interpreted to mean that ministers can do what is necessary to keep the country going.

It is possible that they could use such powers to revert to the previous year's Budget and allow tax collection to continue.

Budget blocked

For an example of an occasion on which the Finance Bill was not passed, you have to go all the way back to 1909.

David Lloyd George in 1914
David Lloyd George failed to get the Finance Bill passed in 1909

Liberal Chancellor David Lloyd George was trying to pass his People's Budget, which introduced higher income taxes for higher earners and also a land tax, in order to fund programmes such as the introduction of old age pensions.

The Conservative-Unionist-dominated House of Lords vetoed the Budget, which meant that a Finance Bill was not passed until 1910, after a general election had been held.

The veto of 1909 led to the Parliament Act of 1911, which stripped the House of Lords of the power to block financial legislation.

Questions were asked in the House of Commons in March 1910 as to whether people would be entitled to tax refunds on the basis that the Finance Bill had not been passed.

The Chancellor replied that he had received legal advice that a bill allowing income tax to be collected for 1909-10 did not have to be passed before the end of that financial year and that as a result it was fine to collect the taxes in anticipation of such a bill being passed.

"It depends entirely whether there will be a Finance Bill which will eventually sanction the collection of the Income Tax," he told the House.

But in December 1909, Prime Minister Herbert Asquith told the House that his government would have to borrow money because of the failure to pass a Finance Bill.

By early 1910, the Treasury estimated a shortfall in taxation of more than £31m, which was a hefty proportion of the £162.6m in tax revenue the government expected for the year, according to Roy Douglas, emeritus reader at University of Surrey and author of several books about the period.

This was blamed almost entirely on the near impossibility of collecting income tax.

"The Lords did at last pass the 1909 Budget (or at least most of it) in 1910, although controversy did continue over the powers of the House of Lords until the Parliament Act was passed in 1911," says Dr Richard Toye, associate professor of history at Exeter University.

'Seeds of doubt'

Even if the government can delay the Budget if it has to, there are strong reasons why it would not want to do so.

"It would sow seeds of doubt and confusion in the markets", according to Professor Patrick Dunleavy, professor of political society and public policy at London School of Economics.

"The Budget is a time when a lot of statistics are updated so there are dangers here if you were to delay the issuing of those statistics, particularly at a time when people know there is a fiscal gap," he explains.

He also says that the system is very much stacked in the government's favour when it comes to passing finance bills.

The last time the House of Commons managed to make a change to a Budget spending plan was in 1918, when the decision to add a second bathroom to the Lord Chancellor's residence was voted down.



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